190 F.

2d 845

In re McGANN MFG. CO., Inc.

Nos. 10,090, 10378, 10379.

United States Court of Appeals, Third Circuit.

Argued June 18, 1951.
Decided July 30, 1951.

David H. Frantz, Philadelphia, Pa. (Edwin J. Feeny, Philadelphia, Pa., on

the brief), for appellant.
Ralph F. Fisher, York, Pa., for Trustee.
Thomas D. Caldwell, Harrisburg, Pa., for stockholder.
Before BIGGS, Chief Judge, and STALEY and HASTIE, Circuit Judges.
STALEY, Circuit Judge.

In this proceeding under Chapter X of the Bankruptcy Act, 11 U.S.C.A. 501

et seq., a mortgagee of debtor has filed three appeals. The appeal at No. 10,090
was taken from an order approving a lease upon the property encumbered by
the mortgage, and that at No. 10,379 is from an order approving a second lease
on the property; the mortgagee has also appealed (No. 10,378) from an order
which dismissed the mortgagee's petition under Section 236 of the Bankruptcy
Act, 11 U.S.C.A. 636, whereby mortgagee sought either an adjudication that
the debtor was a bankrupt or a dismissal of the reorganization proceedings.

The trustee was appointed on March 18, 1946. 1 Numerous extensions of time
were granted for the presentation of an acceptable plan of reorganization, but no
plan has ever been forthcoming. The principal barrier to the preparation and
filing of a plan has been the uncertainty of the debtor's financial picture because
of pending litigation by the trustee under the Lucas Act (War Contracts
Hardship Claims Act) 41 U.S.C.A. 106 note. In that action, commenced in
1946, the debtor sought recovery of approximately $650,000 for losses alleged
to have been suffered by it in the performance of World War II contracts for the
United States Maritime Commission and others. The War Contracts Relief

Board of the Navy denied relief, following which an appeal was taken to the
District Court for the Middle District of Pennsylvania. That appeal was pending
before that court at the time the most recent order was entered extending the
time for filing a plan and at the time the instant appeals were argued before this
court. Subsequent to the oral argument, however, a decree was entered by the
district court in the Lucas Act litigation, awarding the McGann Manufacturing
Company approximately $57,000 plus interest.
3

The parties have agreed that the appeal from the order of the district court
dismissing mortgagee's petition under Section 236 is the principal appeal and
that the other two are dependent on it. The fundamental question involved is
the extent to which the district court can require a lien creditor to suffer the
possibility of ultimate loss in order that a debtor and other creditors may have
an opportunity to effect a plan of reorganization. Such a question is primarily
one for the district court, and the determination of that court will not be
reversed except for a clear abuse of discretion.2

It may very well be that the extraordinary circumstances here justified the great
delay. See In re Utilities Power & Light Corp., 7 Cir., 1937, 91 F.2d 598.3 The
district court, in its opinion of September 12, 1950, stated that there was a
reasonable expectation that an acceptable plan might be formulated in the near
future. Now that the decision in the Lucas Act suit has been handed down,
however, we think an early date should be set by the district court for the filing
of a plan.4 The object of Chapter X is to effectuate quick reorganization, and
not to nurse indefinitely an ailing enterprise. In re Pittsburgh Rys. Co., 3 Cir.,
1946, 155 F.2d 477. We, therefore, will remit the record at No. 10,378 with
directions to the district court to enter an order fixing a date within a reasonable
time on or before which a plan must be filed.

The approval of the leases was within the discretion of the district court, except
that no reason has been shown to support the provisions thereof that payments
to be made on account should be credited to principal. We are of the opinion
that such payments should be applied as the mortgagee creditor desires. The
record at No. 10,090 and the record at No. 10,379 will be remitted with
directions to the district court to modify its respective orders of July 12, 1949,
and November 21, 1950, by providing that such payments shall be applied as
the mortgagee creditor may elect.

A history of the proceedings appears in the opinion of this court in an earlier

appeal. In re McGann Mfg. Co., 3 Cir., 1951, 188 F.2d 110

See In re Island Park Associates, 2 Cir., 1935, 77 F.2d 334, 337; Oakland Hotel
Co. v. Crocker First Nat. Bank, 9 Cir., 1936, 85 F.2d 959

See Continental Illinois Nat. Bank & Trust Co. v. Chicago, Rock Island & P.
Ry. Co., 1935, 294 U.S. 648, 685, 55 S.Ct. 595, 79 L.Ed. 1110

Counsel for the trustee stated at the oral argument on this appeal that the trustee
would be in a position to file a plan within ten days of the decision of the
district court in the Lucas Act case, even if that decision be an adverse one